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073707
MDHIAN 2195
SECRET
FM HONG KONG
TO IMMEDIATE FCO
TELNO 358.
OF 071051Z FEBRUARY 92
INFO IMMEDIATE PEKING, UKREP JLG HONG KONG
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FCO PERSONAL FOR RICKETTS, HKD PEKING PERSONAL FOR AMBASSADOR UKREP JLG PERSONAL FOR PAUL
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YRTELNO 149: CONFIDENTIAL FINANCIAL DIALOGUE
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1. WE WOULD PREFER NOT TO AWAIT THE OUTCOME OF THE OVERALL REVIEW OF MONETARY ARRANGEMENTS BEFORE INTRODUCING THE LIQUIDITY ADJUSTMENT FACILITY (PARA 2 OF TUR). THE ARGUMENTS FOR INTRODUCING THIS MODEST IMPROVEMENT HAVE BEEN WELL REHEARSED WITH BOTH ANTHONY LATTER OF THE BANK OF ENGLAND AND THE EXCHANGE FUND ADVISORY COMMITTEE. BOTH WERE SUPPORTIVE. THERE HAS ALSO BEEN WIDE SUPPORT FOR THE PROPOSAL FROM THE BANKING SECTOR. WE WOULD LIKE TO BRIEF THE CHINESE AS SOON AS POSSIBLE, PARTICULARLY AS THE SUBJECT HAS BEEN THOROUGHLY LEAKED TO THE PRESS.
2. WE UNDERSTAND THAT THE BANK OF ENGLAND HAS NOW PREPARED A PAPER ON THIS SUBJECT AND THAT OLIVER PAGE IS BRINGING IT OVER FOR DISCUSSION WITH US THIS WEEKEND. ASSUMING THAT THE DISCUSSION DOES NOT POINT TO ANYTHING FUNDAMENTALLY WRONG IN OUR PROPOSAL, WE WOULD LIKE TO PRESENT THE PROPOSAL TO THE CHINESE AT THE MEETING ON 17 FEBRUARY. HOWEVER, WE ARE CONTENT TO DO THIS IN LESS DEFINITE TERMS, MAKING IT CLEAR THAT WE STILL NEED TO TAKE ACCOUNT OF COMMENTS FROM INTERESTED PARTIES SUCH AS THE HONG KONG ASSOCIATION OF BANKS BEFORE FINALISING THE DETAILS.
2. ON THE PROPOSAL TO DISCLOSE FIGURES ON THE EXCHANGE FUND (PARA 3 OF TUR), WE NOTE YOUR ADVICE IN FAVOUR OF A MORE CAUTIOUS APPROACH. WE SHALL DRAFT AN APPROPRIATE SPEAKING NOTE.
3. ON THE TWO DETAILED POINTS IN PARA 8 OF TUR:
(A) IT WOULD INDEED BE POSSIBLE TO USE THE FORWARD BOOK TO ADJUST THE END OF YEAR BALANCE SHEET FIGURES IF THIS WERE THOUGHT DESIRABLE.
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